KARACHI: Banking sector is playing a pivotal role in driving economic revival, with private sector lending reaching Rs 1.5 trillion in the fiscal year (FY26).
The Pakistan Banks Association (PBA) on Wednesday highlighted the banking sector’s robust contribution to Pakistan’s ongoing economic revival, citing a record surge in private sector credit during the current financial year.
According to PBA, commercial banks have extended approximately Rs 1.5 trillion in financing to the private sector in FY26, a surge in liquidity that is driving 8.33 percent growth in Large-Scale Manufacturing (LSM), validating the sector’s pivotal role in supporting industrial output and job creation.
The number of SME borrowers rose by 56.9 percent, increasing from 176,246 in June 2024 to 276,578 in June 2025, while outstanding SME financing jumped 40.7 percent to Rs 691 billion, reflecting banks’ active efforts to bring small entrepreneurs into the formal financial net.
Credit to private sector in Pakistan rises 15% YoY in August 2025
In the agriculture, FY25 marked a historic turning point for agricultural credit. For the first time since 2019, the banking sector reversed a six-year decline in the agricultural borrower base, with the number of farmers accessing credit rising 7.3 percent to nearly 2.9 million. This resurgence was supported by record disbursements of Rs 2.57 trillion, up 16.3 percent year-on-year, and an outstanding portfolio of Rs 995 billion, demonstrating banks’ renewed engagement with the rural economy when fiscal space allows.
These flows validate the market mechanism: as government borrowing from domestic deposits moderates, banks naturally pivot to support credit-starved segments of the economy. By channelling record liquidity into these segments – from the sharp expansion in SME financing to the reversal of the long-standing decline in agricultural borrowers – the banking sector is reaffirming its central role in Pakistan’s economic recovery.
“The latest data demonstrates a clear fundamental economic reality: when government borrowing moderates, banks immediately and effectively deploy capital into business, industry, and agriculture,” said Zafar Masud, Chairman PBA.
“The banking sector has successfully pivoted liquidity from sovereign debt to productive private economy, serving as the primary engine for the recent industrial recovery,” he added. The banking sector remains highly liquid and well-capitalised, with deposits standing at Rs 35.1 trillion. The PBA emphasised that the current spike in lending is not an anomaly but a reflection of what the banking sector is capable of when structural distortions, specifically excessive government reliance on domestic banking deposits, are eased.
“The banking sector has always been willing to lend. What needed is a conducive policy environment, risk-sharing frameworks, and market-led mechanisms that make private sector lending attractive and sustainable,” added Muneer Kamal, CEO and General Secretary, PBA.
Addressing the long-standing critique that banks prioritise only large corporations, the PBA emphasised that the recent credit flows represent a strategic shift toward accommodating the sectors that have historically struggled the most to access financing. The banking sector has successfully channelled record liquidity into Small and Medium Enterprises (SMEs) and Agriculture, ensuring that the benefits of improved liquidity are shared across the economic spectrum.
Looking ahead, PBA reaffirmed its commitment to partnering with regulators to expand credit access, particularly through sector-specific initiatives in SMEs, housing, agri value chains, logistics, and renewable energy. Incentives for formalization, digital lending, and data-driven credit solutions will further enhance banks’ ability to serve the economy and sustain long-term inclusive growth.
Copyright Business Recorder, 2025
